What Will Obama, Trump Do About Russia?

President Obama will almost certainly deliver a forceful response to Russia’s cyber-meddling in the 2016 presidential election before his term expires next month and Donald Trump moves into the Oval Office.

What that response will look like is hard to say, though sanctions are much more likely than harsher measures. Cyberdefense remains a weak spot for the U.S., and questions about the best way to respond to acts of online aggression have largely gone unanswered during Obama’s time in office, according to Claude Barfield of the American Enterprise Institute. Continue reading “What Will Obama, Trump Do About Russia?”

Previewing Donald Trump’s Energy and Environmental Policies

It’s safe to say that under President Donald Trump’s administration, a lot is going to change for energy and environmental policies after eight years of President Barack Obama. Trump’s early choices for Cabinet heads – an oil company executive at the State Department, a pro-drilling former Texas governor for the Department of Energy, an outspoken critic of Obama-era climate regulations to head the Environmental Protection Agency – strongly hint at a shift toward more development of natural resources and less-restrictive environmental rules. But what exactly will be changing, especially at the beginning of the Trump administration?

Walking Back Obama Priorities

Admittedly, I don’t have a direct line to Trump Tower, so I can’t ask the Donald himself what sorts of new policies we should expect when he takes office next month. But I have been speaking with folks who know his advisers, or represent influential business groups, or understand the industries most likely to be affected. Here are the highlights of their comments.

Christopher Guith, a senior vice president for energy policy at the U.S. Chamber of Commerce, believes the Trump administration will be busy undoing or modifying many of Obama’s policies and decisions. But some figure to change faster than others. Guith predicts that Trump will first go after certain executive orders Obama issued because they can be reversed right away by a new president.

That could include nixing the “social cost” of carbon dioxide and other greenhouse gases that Obama instructed federal agencies to weigh when considering the costs and benefits of regulations that limit emissions of such gases. In essence, assuming that emitting greenhouse gases imposes hefty future costs on society in the form of climate change makes the benefit of limiting such emissions higher, thus making the economic impacts of various regulations easier to justify. Guith believes that Trump will “take a knife” to this policy.

Also look for action on Obama’s recent order to halt the issuance of new coal mining leases on federal lands. That move cheered environmentalists who want to see the U.S. produce and burn less coal, but infuriated the coal industry and states with big coal mining operations. Guith expects the moratorium to be “eviscerated” within weeks or months of Trump taking office.

(Incidentally, reopening federal lands to coal mining might not make an immediate difference for the coal industry’s bottom line. As I recently wrote, the industry is poised for a rebound in 2017. But its upside is probably limited in the long run.)

A recently issued Obama regulation that would make coal mining permits harder to get in the name of protecting streams from mining-related waste could also be on the chopping block. The Republican Congress could employ the seldom-used Congressional Review Act to kill the regulation, since there will soon be a pro-coal Republican in the White House who would probably approve such a measure. (The CRA doesn’t have much teeth when one party controls Congress and the other has the presidency, since the president who issued the regulation in question can veto any bill from Congress seeking to overturn it.)

Finally, look for a change in the EPA’s approach to dealing with lawsuits from environmentalists. Guith says that the Obama EPA often declined to defend itself from such suits because it agreed with the gist of the complaints and was content to go along with the resulting court orders. That “sue and settle” mentality will be a thing of the past under Trump, he thinks. Instead, the EPA will vigorously defend its policies in court.

One thing that probably won’t change right away is the Environmental Protection Agency’s Clean Power Plan, which was designed to reduce carbon dioxide emissions from power plants. A legal challenge to the regs prompted the Supreme Court to order a halt to their implementation and give the Court a chance to hear the case. The outlook had been murky because of the death of Justice Antonin Scalia. But with Trump likely to appoint a conservative replacement, there is a good chance that the Supreme Court will eventually strike down at least part of the CPP, forcing the EPA to go back to the drawing board on regulating carbon. That’s a process that could take quite a while to play out.

Drill, Baby, Drill?

So much for what Trump might undo. What will he do?

To answer that, I checked in with David Holt, president of the Consumer Energy Alliance, a trade association composed primarily of big energy users, as opposed to producers. When I spoke with him in the immediate wake of Trump’s victory on Nov. 8, he said to look for the new president to expedite and support more energy infrastructure such as pipelines, and authorize more oil and gas drilling in areas such as the waters of the Gulf of Mexico. As Holt sees it, the widespread growth of hydraulic fracturing and horizontal drilling is nothing short of an “energy revolution” for the U.S. And he believes Trump fully intends to encourage that revolution to foster job creation.

White House support for expanded drilling and pipeline construction could set off a backlash among foes of such development. Holt’s primary concern is that, with the federal government less likely to limit or block energy-related development, activists in the environmental movement will resort to sabotage or civil disobedience to thwart new projects. The months-long protest of the nearly completed Dakota Access Pipeline System in North Dakota could be a sign of more-aggressive activism to come.

(Trump looks likely to grant the final easement needed to complete the DAPS project. And even the stillborn Keystone XL pipeline to connect Canada’s oil sands region with U.S. refiners could gain new life in the Trump administration. If so, buckle up for a major showdown between green groups and the White House.)

Speaking of environmentalists, I’ve been calling some of them to get their take on the incoming administration. So far, no one has been willing to talk, giving the impression that a lot of these folks are still sizing up Trump themselves and don’t yet know what to expect from him. Odds are they’ll become more talkative when Trump takes office and begins implementing policies that they disagree with. But here’s one early prediction: The confrontations will be frequent and acrimonious.

Cyberattacks Threaten the Internet of Things

The Internet of Things is giving cybercriminals millions of new vulnerable targets. Internet-enabled devices are plagued by shoddy security and lax regulation. Everything from baby monitors to the electric grid is susceptible to attack as millions more things get connected to the web—20 billion by 2020, up from 6 billion today, according to market research firm Gartner.

The number of connections will continue to soar as it gets cheaper and easier to slap a wireless chip and microprocessor on virtually any product. The ever-growing list of objects that have Wi-Fi includes drones, dolls, teakettles, televisions, lights, locks, refrigerators, thermostats, speakers, virtual reality goggles and bathroom scales. Continue reading “Cyberattacks Threaten the Internet of Things”

Steel Prices on a Sharp Upswing

Prices for steel will rise through early 2017 on the expectation of more infrastructure spending by the Trump administration and robust construction of hotels, office and school buildings. Over the longer run, though, production overcapacity in China will help temper increases.

The cost of steel plate products, used in bridge construction, pipelines, etc., are already up sharply—a 20% increase since the presidential election. Buyers are also shelling out 7% more for steel-reinforcing bar used in road and bridge and building construction. Also up: Prices for hot- and cold-rolled steel, used to make cars, appliances and more. Hot-rolled steel is up 14%; cold-rolled 11%. Meanwhile, scrap metal is selling for 16% more. Continue reading “Steel Prices on a Sharp Upswing”

Will antiestablishment fever sweep through Europe?

Europe is in for a bumpy ride next year, and U.S. business interests across the pond will feel the vibrations.

Populism is sweeping across the continent, generated by voter anger at the political establishment over weak economic growth, the scarcity of jobs, an anti-immigrant backlash and a perception that financial markets matter more to government leaders than the well-being of ordinary workers. It has just swept Italian Prime Minister Matteo Renzi from power and earlier did the same to British Prime Minister David Cameron—and it’s headed full bore for the European Union’s biggest and most influential economies. Continue reading “Will antiestablishment fever sweep through Europe?”

Trump Administration Will Dial Back Workplace Gains

The pro-labor regulatory agenda of the Labor Department will grind to a halt under President-elect Trump. Executive orders issued during the Obama Administration will be undone and enforcement actions against employers are likely to fall off dramatically.

At the top of the list of rules the Trump Administration will revisit is one on overtime. The rule was set to go into effect on Dec. 1, but a federal judge in Texas temporarily halted implementation. The matter is not expected to be resolved before the new administration takes office, which means that the rule can be pulled back and revised, or shelved. Odds are it will be modified, rather than scrapped, with the salary threshold in the new rule set at about $35,000, from $47,476 in the Obama rule. Continue reading “Trump Administration Will Dial Back Workplace Gains”

Will Trump Bring Better Days for Coal?

One of Donald Trump’s clearest campaign promises was to revive the beleaguered U.S. coal industry and bring back the thousands of mining jobs that have been lost in recent years. Trump pinned the blame for coal’s woes on the Obama administration’s pending climate change regulations, which would discourage burning coal to generate electricity. Trump isn’t in office yet, and his environmental policies are still taking shape. But the coal industry is already enjoying a bit of a comeback.

Natural Gas: Fueling a Coal Comeback

“Coal hit bottom in the spring of this year,” says Andrew Moore, managing editor of Platts Coal Trader at S&P Global Platts. Back then, coal consumption had plummeted and coal’s share of U.S. electricity generation had fallen to its lowest point on record. (It was around that time that we first spoke with Moore, who predicted that 2016 could mark the low point for the coal business.)

Since then, usage has increased and coal prices are up by 40% or more, depending on the variety. Some big mining companies have emerged from bankruptcy. But it isn’t political change that has improved the industry’s fortunes so much as economic changes; namely, the increase in natural gas prices.

What’s the connection? Coal and gas are the top two fuels for generating power in the U.S., so they compete for market share in the utility industry. Gas prices hit a 17-year low this winter because of warm weather and a glut of supply, making gas more attractive for generating power than coal. Utilities that own both coal and gas-fired power plants idled the former and ran the latter harder to save on fuel costs.

Since spring, gas prices have almost doubled thanks to increased consumption by electric utilities and a small decline in gas production. Today’s gas future’s price of about $3.50 per million British thermal units makes coal mined in Wyoming’s low-cost Powder River Basin especially competitive. That’s good for companies such as Peabody Energy and Cloud Peak Energy, which have significant operations there.

But what about the future? Is coal going to come roaring back under President Trump? Our short answer: Not quite.

Here’s the longer answer. Coal’s upside is probably fairly limited. Sure, there are things Trump could do to help the industry. Platts’ Moore notes that the Trump administration could approve more natural gas export terminals that several energy firms have requested permission to build. Those terminals would ship more of coal’s chief competition overseas instead of keeping it in the U.S. market. Likewise, Trump could undo the ban the Obama administration has placed on granting new coal mining leases on federal lands, or OK more coal export terminals on the West Coast, allowing miners to tap new markets abroad. Plus Obama’s climate regulations, already facing a court challenge, are likely to be significantly curbed.

But in the long run, the competition with natural gas will rule coal’s fate. Though gas prices have rebounded from their winter low, they remain cheap by historic standards. Energy firms operating in U.S. shale fields such as the Marcellus in Pennsylvania have demonstrated that they can quickly increase gas drilling and production when prices rise. Indeed, the latest rig count reports from oilfield services provider Baker Hughes show that gas drilling activity is already picking up (though not as sharply as oil drilling is).

The bottom line: Coal isn’t going away as an energy source. But its days as the dominant source of electric generation are probably over. Older, inefficient coal-fired power plants continue to close, and there’s no sign that utilities intend to replace them with new plants anytime soon. The Department of Energy reports that coal-fired power plant capacity has fallen by 15% since 2011, with natural gas and renewables taking up the slack.

Going forward, expect coal to account for roughly 30% of power generation (versus 50% or more in the early years of the 21st Century), which is in line with its current share. Holding steady might not sound like something to celebrate. But considering earlier expectations that tough climate change regulations and rock bottom natural gas prices would cause coal usage to keep dropping, coal producers and their workers will probably be breathing a sigh of relief.

OPEC Finally Acts (or did it?)

Oil markets were jolted this week by something they hadn’t seen in years: Concerted action by the Organization of the Petroleum Exporting Countries to tighten crude oil supply in the face of excess production. Since late 2014, OPEC has been debating some sort of output cut. But internal dissent and competition from prolific shale oil wells in the U.S. has made reaching an agreement difficult. That’s why I was skeptical that OPEC would do much when it met in Vienna this week.

At first glance, OPEC’s sudden resolve to reduce oil production sounds impressive. Effective Jan. 1, the cartel intends to lower output by 1.2 million barrels per day for six months, with the option to continue the reduction for another six months. That’s a significant chunk of OPEC’s current production of more than 33 million barrels per day. Russia, the world’s largest oil producer but not an OPEC member, is supposedly on board with cutting production in harmony with OPEC.

Oil prices soared on the news, with benchmark West Texas Intermediate crude jumping from about $45 per barrel before the meeting to $51 per barrel by the end of the trading week. But I think the market’s exuberance is a bit overdone.

First, how much production is OPEC really cutting? The announcement of the deal also included news that Indonesia has been suspended from OPEC. Are the roughly 700,000 barrels of oil it pumps each day being counted toward the overall reduction target, since they won’t officially be “OPEC barrels” anymore? Early reports indicated that the remaining OPEC members were effectively divvying up Indonesia’s production amongst themselves in counting toward their reduction quotas, but that isn’t yet clear. What is clear is that the details of how OPEC implements the deal will determine how effective it is.

What’s more, the remaining OPEC members aren’t sharing the burden of production cuts evenly. Libya and Nigeria have been exempted from the deal because both countries have suffered output losses recently due to civil war or terrorism. With those disruptions dying down now, both Libya and Nigeria could soon be increasing production again, forcing the rest of the cartel to cut more to compensate. And what about those accompanying cuts by Russia and other nonmembers? OPEC’s announcement pegs them at 600,000 barrels per day. But Russian Energy Minister Alexander Novak is saying Russia will reduce output by 300,000 barrels, leaving other countries to fill in the rest.

What does all this mean for oil prices? In the near term, lots of volatility. After the OPEC news broke on Wednesday and oil prices leapt higher, I called energy markets analyst Stephen Schork for his quick take and to ask if he’s buying this sudden rally. “I’m sure not shorting it right now,” he said with a laugh. In the short term, he thinks WTI could reach $53 per barrel on OPEC-related optimism. But he also notes that U.S. energy firms will seize on these prices to ramp up drilling and production.

In the longer term, be skeptical that OPEC’s actions will really change the trajectory of prices. Even if its members adhere to the full 1.2 million barrel cut and there’s no monkey business with the math, it will be hard for the cartel to push prices up much with more U.S. output returning to the market. I still see WTI averaging somewhere in the low-$50s per barrel next year, which would be a moderate uptick from now. Maybe OPEC could have engineered a bigger gain in the past, when it wielded greater clout and didn’t have to worry about U.S. shale producers eating into its market share. But those days are long gone.